By Jessica Toonkel
(Reuters) - Viacom Inc's Paramount Pictures will receive a $1 billion cash investment from two Chinese film companies, Shanghai Film Group and Huahua Media, giving the U.S. studio needed cash and stability as it attempts to grow.
As part of the agreement, Shanghai Film Group and Huahua Media will finance a combined 25 percent of all Paramount's films for the next three years, with the option to extend it to a fourth year, according to a source familiar with the situation.
The deal comes as parent company, Viacom Inc, focuses on a turnaround plan under new Chief Executive Officer Bob Bakish.
Paramount also could use the partnership as an entry point into China, said Brad Grey, CEO and Chair of Paramount, noting that the studio would someday be interested in producing films in the country.
"Certainly Paramount would love to produce films (in China) and we think that should be a win for us," Grey said in an interview.
The agreement marks the first major move by Grey since Viacom's former CEO, Philippe Dauman, tried to sell a 49 percent stake in the movie studio to Chinese real estate conglomerate Dalian Wanda Group.
"This will give Paramount the wherewithal to build the slate and produce as a major studio should 15-17 movies a year," Grey told Reuters. Over the past few years, under Dauman, Paramount's production fell as low as eight films in a given year.
"You really can't operate a major studio with that," Grey said, referring to the lower figure.
Dauman left Viacom in August after losing a battle for the company to controlling shareholders Shari and Sumner Redstone. He has been replaced by Bakish, who previously ran Viacom's international business.
In the third quarter, Viacom said its third-quarter earnings were hurt by the underperformance of Paramount's "Teenage Mutant Ninja Turtles: Out of the Shadows."
The studio's cash infusion emerges as Chinese firms have shown increasing interest in investing in Hollywood.
Last year, Dalian Wanda spent $3.5 billion to buy a controlling stake in U.S. film studio Legendary Entertainment. Other Chinese firms that have put money into Hollywood include Fosun International, which invested in Studio 8 - a production company started by former Warner Brothers executive Jeff Robinov.
Huahua has partnered with Paramount on several films, including "Transformers: the Age of Extinction" and "Star Trek Beyond". Shanghai Film Group, which is one of the largest theater chains in China, was an investor in "Jack Reacher: Never Go Back".
Viacom shares moved higher in afternoon trading but pared gains to close at $39.80.
(Additional reporting by Tim Baysinger; Editing by Bernard Orr)